Given the younger generation’s collective inability to wisely manage money, asking them to think about retirement may be a stretch.

Mix in the current state of the economy and discussions about retirement funds, and Social Security benefits raise additional concerns. Regardless, the issue needs to be addressed since at some point everyone will (hopefully) retire.

In this state, the Teacher Retirement System of Texas presents educators and those retiring from the public school and higher education systems, with additional angst.

With one in 20 Texans affected — one in 20 Texans is a member of TRS, the sixth-largest pension fund plan in the country — and 1.2 million active and retired educators or public school workers in the system, it is imperative that the system remain actuarily sound. Incoming contributions must exceed total outgoing compensations in order to pay out over time and for current retirees to receive a pension increase.

Two kinds of pension plans

Educators in retirement usually have one of two types of pension plans, the defined contribution and the defined benefit plan.

The defined contribution plan is what exists in most businesses and industries, where the employee contributes directly from wages into an account that is matched by the employer, such as a 401(k) plan.

“With a 401(k) plan you have the option of putting money into stocks, bonds or other annuities,” said Steven Caruso, a Texas Retired Teachers Association state legislative committee representative from Central Texas, who added that some 401(k) plans are transferable between employers and states.

“Lately, we’re seeing companies reduce their contributions to lower employee costs. These 401(k) plans are a business expense and cost businesses a lot of money,” Caruso said.

The defined benefit pension plan for currently active educators and retired annuitants is what currently exists in the state of Texas. This plan affects educators and those who have served and retired from the public school system such as cooks, bus drivers, maintenance workers, administrators and custodians.

“The defined benefit plan is based on the core belief that we have to sustain the individuals who’ve contributed to the TRS pension fund,” Caruso said.

The retirement annuity is formulated using one’s best salary average over a period of 3-to-5 years multiplied by the individual’s number of years of experience times a multiplier, which in this case is 2.3 percent.

The defined benefit plan is not solely dependent upon employee contributions, although 16 percent of the funds come from member contributions while only 14 percent of the funds come from state contributions. The remaining 70 percent comes from investment returns on TRS pension funds.

And there are currently enough funds in the TRS to pay the current retirees for 31 years, which is a state requirement.

Current active duty educators in the TRS system pay 6.4 percent. The state contributes 6.58 percent, at the current legislation, which will expire on Aug. 31, 2009.

The state contributed 6 percent for the last 10 years and the TRS has not seen an increase in contributions by the state.

“The state underfunded the TRS pension plan for the last 10 years,” Caruso said.

Six percent is the lowest amount the state can contribute. On a scale of 6 to 10 percent, with 10 percent being the

highest contributable amount, the “state has chosen the low end for the last 10 years,” Caruso said, adding that the choice has resulted in underfunding the pension trust fund whereas strong investments have been able to keep it funded.

“Seventy percent of funding from investments means that you have to have very sound practices and procedures in place to turn a profit that large,” Caruso said, adding that investments are hinged on the economy and since the economy is not in the best state right now, that makes it really hard for anyone to figure out how to make the most money from your investments.

In turn, a pension increase has not been granted to retirees since 2001.

“Our money today won’t buy what my dollar got me in 2002, when I retired,” Swindle said, adding that a pension increase for retirees should be a No. 1 priority at the state-level.

Money for Texans

The economic impact of the annuities to TRS retirees show that in 2007, TRS paid out $5.8 billion to Texas’ retirees, of which 95 percent was spent in the state.

Also, $315.2 million of that billion dollar amount was distributed to annuitants and retirees in Central Texas. And of that amount, $56.6 million stayed in Bell County. In Bell County alone there are more than 2,700 TRS retirees who were employed by school districts.

“Those are startling numbers,” Swindle said, adding “that’s a big deal, but if you haven’t had an increase in eight years, you’re not helping the economy.”

GPO-WEP

At the federal level, TRS annuitants are suffering as well. The Government Pension Offset and Windfall Elimination Provision is a federal problem that affects some TRS members.

GPO-WEP affects spousal benefits and reduces annuities received from Social Security, if one’s spouse receives a state or government pension plan.

“You can’t get both a TRS pension and a Social Security annuity,” Swindle said, adding that a person’s Social Security annuity will be reduced by two thirds — an individual will only get one third of his contributed Social Security funds.

“You’ve paid into Social Security all of these years and now it’s a fairness issue. People who’ve earned and continue to earn are getting penalized,” Caruso said, adding that GPO-WEP affects Texas state workers such as firemen, policemen and other state and federal workers.

Resolutions

House Resolution 82, which is currently in review in Congress, is the Social Security Fairness Act. Its chief sponsor, Lloyd Doggett, a Democrat from Austin, is actively seeking its approval. HR 82 suggests complete repeal of the GPO-WEP and if approved will remove GPO-WEP completely.

“So, if you earned your Social Security money, you will receive it,” according to HR 82, Caruso said.

House Resolution 2772, on the other hand, sponsored by Kevin Brady, a Republican from East Texas, states that if passed, the bill will only affect the GPO portion but won’t change WEP — instead of a retiree only receiving one third of his Social Security, he will receive half of it.

“Society has changed its expectations of schools. Teachers have to do more with less,” that applies to stretching every dollar when it comes to budgeting for cost of living, Swindle said.

Take a stance

The question remains: What can active duty public school employees and retirees do?

“Active and retired teachers need to be a team,” Swindle said, adding “We need to know our representatives at the

state and federal level and be politically active and involved with them.”

“Share and communicate your needs,” Caruso said. “Contact your state and federal representatives, write handwritten letters preferably, send e-mails, call them and visit them personally. Bring with you a bucket list of your needs and locate one of that representatives teachers and bring him or her along, too even if she’s now in a walker or wheelchair.”